42 percent of the people who own a vacation home cover their total costs with rental income.
Many Americans have the vacation homes of their dreams and turning them into an investment opportunity. What’s to lose? Great vacations and an additional revenue stream.
But before you sign on the dotted line, you need to do your research. Here are three things you haven’t yet considered about buying a vacation home.
1. Rent Before You Buy
When buying a vacation rental property, you should really get to know the area before making your investment. The best way to do this is by renting vacation homes in the area first.
Just because your family enjoys the area during peak vacation season, doesn’t mean it’s an enjoyable location year-round. Make it a point to rent during every season and in different areas around the town. This will give you full insight into the location before you purchase your home.
Make sure it’s a location that offers a great vacation experience throughout the year. If all the local businesses close up shop during the off-season, you may need a service like Treasure Valley Property Solutions to sell the home.
2. Realistically Estimate Income
When you ask yourself, “should I buy a vacation home,” it’s easy to justify the purchase with possible rental income. But you need to make sure you are realistically estimating any possible income.
Use a rental income calculator to get a rough estimate. Once you come up with a figure, underestimate that amount as well.
Keep track of all your income and expenses on a spreadsheet. Once you have a few months of data, this can help you estimate your income moving forward.
To get the most income out of your vacation home, you also want to make sure you’re marketing it efficiently to get the best occupancy rate.
Take tips from real estate marketing, many of the same principals apply to vacation home marketing. A virtual tour gives your potential guests a professional, in-depth look of your vacation home that will quickly result in a booking.
3. Understand The Finances
Owning a vacation rental is a different financial situation than a primary home. Keep in mind that financing your purchase and taxes are different for a vacation home.
When obtaining a mortgage for your vacation home, be aware that your mortgage payments may be higher than if the home was a primary residence. Mortgage companies often charge higher interest rates and require larger down payments.
If you rent out your vacation home for more than 15 days per year, it’s no longer considered a personal-use property for tax purposes.
You’ll need to claim any rental income which can quickly raise your family’s overall income. But you can claim deductions for business expenses such as utilities or management fees. The key is keeping track of all income and expenses related to your vacation home.
Buying a Vacation Home
Now you’re one step closer to buying a vacation home.
Remember to check out the location by renting in different seasons before you buy a home. Realistically estimate the income opportunities of your vacation home and the finances involved. Doing these things now will ensure you can enjoy the benefits of your vacation home.
Think you’re ready to purchase your vacation home? Before you make the deal official, check out this article on mistakes to avoid when buying your vacation home.